Introduction
Hello, I’m Mohammad Akif with Akif CPA. As a Texas CPA and a Chartered Accountant in Ontario, I frequently assist Canadians navigating U.S. tax requirements. One of the most complex areas for Canadians moving to the U.S. is understanding how to report their Canadian assets on a U.S. tax return. In this post, I’ll share essential insights and a crucial first-year tax filing tip to help you avoid costly mistakes.
Crucial First-Year Tax Filing Tip
If you are a Canadian who recently moved to the U.S. or are considering moving, do not file your first U.S. tax return on your own. The U.S. tax system is vastly different from Canada’s, particularly with foreign asset reporting requirements. Many individuals unknowingly file incomplete or incorrect returns, which can lead to severe penalties.
Case Study: A Costly Mistake
A prospective client who moved to the U.S. in 2021 had been incorrectly filing taxes for three years. They reported only U.S. income while neglecting to report Canadian income and assets. They also failed to file necessary foreign asset reporting forms like FBAR (FinCEN 114) and IRS Form 8938. As a result, they now face significant penalties.
Avoiding such situations is simple: hire a tax professional for your first U.S. return. Learn from their process so that you can decide whether to handle future filings yourself.
What Canadian Assets Need to Be Reported?
If you have any of the following Canadian assets, they may require reporting on your U.S. tax return:
- Bank accounts (chequing, savings, etc.)
- Retirement accounts (RRSP, LIRA, RDSP, TFSA)
- Investment accounts (non-registered trading accounts, Canadian mutual funds, ETFs, and stocks)
- Education savings accounts (RESPs)
- Rental properties
- Shares in Canadian private corporations
Key U.S. Tax Forms for Reporting Canadian Assets
1. Schedule B (Part III – Foreign Accounts and Trusts)
- If you have more than $10,000 combined in foreign accounts, you must check “Yes” on Schedule B, Part III and provide details about these accounts.
2. FBAR (FinCEN Form 114)
- Required if you exceed $10,000 in total across foreign accounts at any point in the year.
- Submitted separately to the U.S. Treasury Department.
3. IRS Form 8938 (Statement of Specified Foreign Financial Assets)
- Thresholds for filing depend on your filing status:
- Single or Married Filing Separately: Total value exceeds $50,000 at year-end or $75,000 at any time.
- Married Filing Jointly: Total value exceeds $100,000 at year-end or $150,000 at any time.
- Reports bank accounts, investment accounts, and RRSPs, but not real estate.
4. Schedule E (Rental Property Reporting)
- If you own Canadian rental property, report income and expenses here.
- U.S. depreciation rules for foreign properties differ from Canada’s.
5. Form 8621 (Passive Foreign Investment Companies – PFICs)
- If you own Canadian mutual funds or ETFs, they are considered PFICs under U.S. law.
- These investments require additional reporting and may be subject to unfavorable tax treatment.
6. Form 5471 (Foreign Corporations)
- If you own shares in a Canadian private corporation, you must file Form 5471.
- This is an extremely complex and time-consuming form with strict reporting requirements.
U.S. Tax Treatment of Canadian Accounts
- RRSPs: Tax-deferred in both Canada and the U.S. if properly reported.
- TFSAs: Tax-free in Canada but taxable in the U.S..
- RESPs: Tax-free in Canada but taxable in the U.S..
- Canadian mutual funds/ETFs: Subject to complex PFIC reporting and higher tax rates in the U.S.
Final Thoughts
For Canadians moving to the U.S., tax reporting can be overwhelming. The penalties for failing to report foreign assets can be significant, sometimes reaching 50% of account balances. To avoid costly mistakes:
✅ Hire a cross-border tax professional for your first U.S. tax return.
✅ Ensure all Canadian assets are properly reported.
✅ Plan before moving to optimize your tax situation.
Need help? Contact Akif CPA for expert cross-border tax assistance!
